Q1 2024 SunOpta Inc Earnings Call

Greetings and welcome to the Synopsys first quarter 2024 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the prepared remarks as a reminder, this conference is being recorded.

Operator: Greetings and welcome to Sunopta's first quarter 2020 Fair Earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the prepared remarks. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Reed Anderson with ICR. Thank you. You may begin.

Reed Alan Anderson: Now I'd like to turn the conference over to your host re Anderson well ICR. Thank you you may begin.

Reed Alan Anderson: Good afternoon, and thank you for joining us and Synopsys first quarter fiscal 2024 earnings conference call on the call today are Brian Cooker, Chief Executive Officer, and Greg Gaba Chief Financial Officer by now everyone should have access to the earnings press release was issued.

Reed Alan Anderson: Good afternoon, and thank you for joining us on Sunopta's first quarter fiscal 2024 earnings conference call. On the call today are Brian Kocher, Chief Executive Officer, and Greg Gaba, Chief Financial Officer. By now, everyone should have access to the earnings press release that was issued earlier this afternoon and is available on the Investor Relations page of Sunopta's website at www.sunopta.com. This call is being webcast, and its transcription will be available on the company's website.

Reed Alan Anderson: Earlier this afternoon and is available on the Investor Relations page of Synopsys website at Www Dot Dot com.

Reed Alan Anderson: This call is being webcast and its transcription will be available on the company's website.

Reed Alan Anderson: As a reminder, please note that the prepared remarks, which will follow, contain forward-looking statements, and management may make additional forward-looking statements in response to your question. These statements do not guarantee future performance, and therefore undue reliance should not be placed upon them. We refer you to all risk factors contained in Sunopta's press release issued this afternoon, the company's annual report filed on Form 10-K, and other filings with the Securities and Exchange Commission for a more detailed discussion of the factors that could cause actual results to differ materially from those projections and any forward-looking statements.

Reed Alan Anderson: As a reminder, please note that the prepared remarks, which will follow contain forward looking statements and management may make additional forward looking statements in response to your questions.

Reed Alan Anderson: These statements do not guarantee future performance and therefore undue reliance should not be placed upon them.

Reed Alan Anderson: We refer you to all risk factors contained in <unk> press release issued this afternoon. The company's annual report filed on Form 10-K, and other filings with the Securities and Exchange Commission for a more detailed discussion the factors that could cause actual results to differ materially from those projections and any forward looking statements. The company undertakes no obligation to publicly correct or update.

Reed Alan Anderson: The company undertakes no obligation to publicly correct or update the forward-looking statements made during the presentation to reflect future events or circumstances, except as may be required under applicable securities laws. Finally, we would like to remind listeners that the company may refer to certain non-GAAP financial measures during this teleconference. A reconciliation of these non-GAAP financial measures was included with the company's press release issued earlier today. Also, please note, in the prepared remarks to follow, unless otherwise stated, the company will be referring to the continuing operations portion of the business, and all figures are in U.S. dollars, occasionally rounded to the nearest million. Now, I'll turn the call over to Brian to begin. Okay, Brian?

Brian: The forward looking statements made during the presentation to reflect future events or circumstances, except as may be required under applicable securities laws.

Brian: Finally, we would like to remind listeners that the company may refer to certain non-GAAP financial measures. During this teleconference. A reconciliation of these non-GAAP financial measures was included with the company's press release issued earlier today also please note in the prepared remarks to follow unless otherwise stated the company will be referring to continue.

Brian: The operations portion of the business and all figures are in U S dollars and occasionally rounded to the nearest million.

Reed Alan Anderson: Now I'll turn the call over to Brian to begin Brian.

Brian: Good afternoon, and thank you for joining us today.

Brian W. Kocher: Good afternoon, and thank you for joining us today. We are eager to announce our results for Q1 and look forward to providing you with more insight into our plan for sustainable revenue and EBITDA growth. In short, we are thrilled by our continued and accelerating revenue growth, encouraged by our first quarter performance, and yet still see the opportunity for future growth and improvement. For today's call, I'll start with the highlights from Q1, along with an update on business trends and key priorities. Greg will follow with a review of the financials and our outlook, and then we'll take your questions.

Brian W. Kocher: Eager to announce our results for Q1 and look forward to providing you more insight into our plan for sustainable revenue and EBITDA growth.

Brian W. Kocher: In short we are thrilled by our continued and accelerating revenue growth encouraged with our first quarter performance and yet still see the opportunity for future growth and improvement.

Brian W. Kocher: For today's call I'll start with the highlights from Q1, along with an update on business trends and key priorities, Greg will follow with a review of the financials and our outlook then we'll take your questions.

Brian W. Kocher: Quarter 1's headlines include 18% revenue growth supported by improvements in throughput at our plans that translated to 21% EBITDA growth and adjusted EBITDA of $22.6 million. For the second quarter in a row, we are growing at a rate approximately three times faster than the categories in which we serve, and that growth drove the increase in the bottom line. Greg will have more financial details in his section.

Brian W. Kocher: Core ones headlines include 18% revenue growth supported by improvements in throughput at our plants that translate into 21% EBITDA growth and adjusted EBITDA of $22 6 million.

Brian W. Kocher: For the second quarter in a row, we are growing at a rate of approximately three times faster than the categories in which we serve and that growth drove the increase in the bottom line.

Brian W. Kocher: Greg will have more financial details in his section however.

Brian W. Kocher: However, I'm proud of the quarter we delivered and even more proud of the manner in which we delivered it. On the Q4 call at the end of February, we told you we were focused on three key areas: top line growth, supply chain efficiency, and spending capital wisely. We made progress across every one of our initiatives as we again delivered top and bottom line results that exceeded guidance. Let me offer some insights on our key levers for revenue growth.

Brian W. Kocher: Out of the quarter, we delivered and even more proud of the manner in which we delivered.

Brian W. Kocher: Well the Q4 call at the end of February. We told you. We were focused on three key areas topline growth supply chain efficiency and spending capital wisely.

Brian W. Kocher: We made progress across every one of our initiatives as we again delivered top and bottom line results that exceeded guidance.

Brian W. Kocher: Let me offer some insights on our key levers for revenue growth.

Brian W. Kocher: First, the revenue growth you see today is a reflection of our business development activities in 2023 and early 2024 and remains broad-based as we expand with existing customers, reap the benefits of new customer launches, and leverage our TAM expansion capacity in the rapidly growing protein shake category. Volume drove our excellent revenue growth of 18% to $183 million, a further sequential acceleration from the 14% increase we delivered in Q4 and the 6% increase in Q3 of last year. The revenue growth was also a testament to our broad and diverse portfolio across channels, customers, and products. In fact, our food service channel grew by 11% year over year.

Brian W. Kocher: So revenue growth you've seen in that he is a reflection of our business development activities from 2023 in early 2024 and remains broad based as we expand with existing customers reap the benefits of new customer launches and leverage our Tam expansion capacity in the rapidly growing.

Brian W. Kocher: Rowing protein shakes category.

Brian W. Kocher: Volume drove excellent revenue growth of 18% to $183 million.

Brian W. Kocher: A further sequential acceleration from the 14% decrease we delivered in Q4.

Brian W. Kocher: 6% decrease in Q3 of last year.

Brian W. Kocher: The revenue growth was also a testament to our broad and diverse portfolio across channels customers and products.

Brian W. Kocher: In fact, our foodservice channel grew by 11% year over year.

Brian W. Kocher: Every product category in which we operate grew in the quarter, and in fact, our top three customers all grew double digits in the quarter. Secondly, the addressable market we serve is growing. For shelf-stable plant-based milks in tracked and untracked channels, based on the latest publicly available data and our own proprietary sales order data, we estimate the category volume will grow mid-single digits for calendar year 2024. Recall that much of our volume is derived from untracked channels, and we continue to see growth in food service and club channels.

Brian W. Kocher: Every product category in which we operate grew in the quarter and in fact, our top three customers all grew double digits in the quarter.

Brian W. Kocher: Secondly, the addressable market, we serve is growth.

Brian W. Kocher: For shelf stable plant based milks and tracked and untracked channels based on latest publicly available data and our own proprietary sales order data we estimate the category volume will grow mid single digits for calendar year 2024 weeks.

Brian W. Kocher: Recall that much of our volume is derived from untracked channels, and we continue to see growth in foodservice and club channels.

Brian W. Kocher: Also, protein shapes continue to show very robust growth in tract chains, up roughly 20% in volume over the last 13 weeks versus the prior year. Finally, Fruit Snacks revenue grew 31% from the prior year's quarter, a 15th straight quarter of double-digit growth.

Brian W. Kocher: Also protein shakes continue to show very robust growth in tracked channels.

Brian W. Kocher: Roughly 20% in volume over the last 13 weeks versus the prior year.

Brian W. Kocher: Finally fruit snacks revenue grew 31% from the prior year's quarter.

Brian W. Kocher: 15th straight quarter of double digit growth.

Brian W. Kocher: Fruit Snacks continue to deliver the highest growth rates among our product categories as we leverage our expanded capacity while underlying demand remains very strong. In short, we grew in almost every way you can analyze our revenue. Switching to operations, I've spent a significant amount of my own personal leadership time just starting our Supply Chain Excellence Initiative. As I mentioned previously, improving the effectiveness and the efficiency of our supply chain is a journey of 1,000 steps.

Brian W. Kocher: Fruit snacks continued to deliver the highest growth rates among our product categories as we leverage our expanded capacity while underlying demand remains very strong.

Brian W. Kocher: In short we grew in almost every way you can annualize our revenue.

Brian W. Kocher: Switching to operations I've spent a significant amount of my own personal leadership time, Jumpstarting, our supply chain excellence initiatives.

Brian W. Kocher: As I mentioned previously improving the effectiveness and the efficiency of our supply chain.

Brian W. Kocher: Jeremy 1000 steps.

Brian W. Kocher: We made progress in the quarter, increasing our output by over 20% from the prior year. Despite some modest margin leakage and inventory reserves as we continue harmonizing processes across an integrated supply chain.

Brian W. Kocher: We made progress in the quarter, increasing our output by over 20% from the prior year, despite some modest margin leakage in inventory reserves as we continue harmonizing processes across an integrated supply chain. We have a continuous improvement structure in place, and we see a lot of opportunity for significant margin improvement in the back half of the year. As it relates to our capacity expansion projects, production continues to ramp up on our first two lines at our Midlothian facility.

Brian W. Kocher: We have a continuous improvement structure in place and we see a lot of opportunity for significant margin improvement back half of the year.

Brian W. Kocher: As it relates to our capacity expansion projects production continues to ramp on our first two lines that are in Midlothian spits out.

Brian W. Kocher: We feel really good about the demand environment for utilizing the Texas capacity. Our third line was commercially launched at the end of the first quarter, and we expect to see meaningful contribution from this line in the back half of the year. The focus in Texas continues to be on improving output and efficiency of these lines to fully realize the volume potential in 2024 and 2025. Finally, our oat extraction expansion in Modesto is now up and running, and we will continue ramping up production volumes throughout the remainder of the year.

Brian W. Kocher: We feel really good about the demand environment for utilizing the Texas capacity.

Brian W. Kocher: Our third line commercially launched at the end of the first quarter and we expect to see meaningful contribution from this line in the back half of the year.

Brian W. Kocher: The focus in Texas continues to be on improving output and efficiency of these lines.

Brian W. Kocher: We realize the volume potential in 2024 and 2025.

Brian W. Kocher: Finally, our boat extraction expansion in Modesto is now up and running and we will continue ramping up production volumes throughout the remainder of the year.

Brian W. Kocher: As to spending capital wisely, we continue to evaluate capital projects in a disciplined way.

Brian W. Kocher: As to spending capital wisely, we continue to evaluate capital projects in a disciplined way and are on track for our 2024 CapEx guidance of $25 to $30 million. Additionally, we fully expect to achieve a leverage ratio under three times adjusted EBITDA by the end of the year. I'd like to take a minute to highlight some of our strengths at Sunopta Strength.

Brian W. Kocher: We're on track for our 2020 for Capex guidance of $25 million to $30 million.

Brian W. Kocher: Additionally, we fully expect to achieve a leverage ratio under three times adjusted EBITDA by the end of the year.

Brian W. Kocher: We have a fantastic culture at Sunopta. Our people care. They care about the planet, about each other, and about making a positive impact in the communities in which we work and live. The passion and values of our employees and company culture drive our ESD initiatives. Whether our employees are pushing energy reduction in our Midlothian facility, achieving zero waste status at our beverage plants, or planting trees in Niagara, Canada, during a designated volunteer time off day, our employees live ESG, and we are better for it.

Brian W. Kocher: I'd like to take a minute to highlight is somehow to strengthen.

Brian W. Kocher: We have a fantastic culture at <unk>.

Brian W. Kocher: Our people care. Thank you.

Brian W. Kocher: Hear about the planet about each other and about making a positive impact in the communities in which we work and live.

Brian W. Kocher: The passion and values of our employees.

Brian W. Kocher: Company culture drive our ESG initiatives whether.

Brian W. Kocher: Whether our employees or pushing energy reduction in our Midlothian facility.

Brian W. Kocher: <unk> zero waste status at our beverage plants or planting trees in Niagara, Canada during a designated and volunteer time off day.

Brian W. Kocher: Our employees live ESG and we are better for it.

Brian W. Kocher: I am thrilled that in our model, we make sound business decisions and investments that are also great for ESG considerations, all while managing our capital allocation. I'm excited to share that we just published our latest annual comprehensive ESG report highlighting progress across the business. This report is available on our website and does a terrific job of articulating our intertwined goals of fueling the future of food and living our ESG values each and every day.

Brian W. Kocher: I am thrilled that in our model, we may sound business decisions and investments that are also great for ESG considerations.

Brian W. Kocher: All while managing our capital allocation.

Brian W. Kocher: I'm excited to share that we just published our latest annual comprehensive ESG report highlighting progress across the business.

Brian W. Kocher: This report is available on our website and does a terrific job of articulating our intertwined goals.

Brian W. Kocher: Fueling the future of food and living our ESG values, each and every day.

Brian W. Kocher: Now that we've talked about the highlights of the quarter, let's discuss specifically how all this information and impacts our outlook for the balance of the year.

Brian W. Kocher: Now that we've talked about the highlights of the quarter, let's discuss specifically how all this information impacts our outlook for the balance of the year. As a reminder, we provided and updated guidance for 2024 financial results based on what we see versus what we hope, and we are sticking to that communication philosophy. In determining our guidance for the year, we consider our performance to date and all publicly available trends in the food service, club store, and retail channels.

Brian W. Kocher: As a reminder, we provided an updated guidance for 2024 financial results based upon what we see versus what we hoped and we are sticking to that communication philosophy.

Brian W. Kocher: In determining our guidance for the year, we consider our performance to date and all publicly available trends in food service club store and retail channels.

Brian W. Kocher: In addition, we collaborate with our customers on a regular basis to support their innovation efforts to ensure we are co-developing products to address changing consumer needs and wants and incorporate changing business demands. Most importantly, and certainly most relevant to how we guide our future performance, on a weekly and sometimes daily basis, we work with our customers to review actual purchase order volumes for a rolling eight-week period, as well as order forecasts for the balance of the year.

Brian W. Kocher: In addition, we collaborate with our customers on a regular basis and supporting their innovation efforts to ensure we are co developing products to address changing consumer needs and wants.

Brian W. Kocher: And incorporate changing business demands.

Brian W. Kocher: Most importantly, and certainly most relevant to how we guide our future performance on a weekly and sometimes daily basis.

Brian W. Kocher: We work with our customers reviewing the actual purchase order volumes on a rolling eight week period.

Brian W. Kocher: As well as order forecast for the balance of the year.

Brian W. Kocher: As a result, we feel it is appropriate and have confidence in raising the guidance for 2024 by the amount of our overperformance in Q1. Again, based on what we see, not what we hope. Greg will cover the specific details in his section.

Brian W. Kocher: As a result, we feel it is appropriate and have confidence in raising the guidance for 2024 by the amount of our over performance in Q1.

Brian W. Kocher: Again by what we see not what we hope.

Brian W. Kocher: Greg will cover the specific details in his section.

Speaker Change: Before turning it over to Greg I want to review our priorities for next quarter in short our areas of focus will not change and we remain steadfast in executing across the three following areas.

Brian W. Kocher: Before turning it over to Greg, I want to review our priorities for next quarter. In short, our areas of focus will not change, and we remain steadfast in executing across the three following areas. Number one, top line growth. We are a growth company in growing categories with a competitively advantaged model that provides multiple ways to win. Remember, our revenue stream has the advantage of diversity.

Brian W. Kocher: Number one top line growth.

Brian W. Kocher: We are a growth company in growing categories with a competitively advantaged model that provides multiple ways to win.

Brian W. Kocher: Remember our revenue stream has the advantage of diversity, we operate in categories that are growing and we have a great customer base that continues to win in the marketplace.

Brian W. Kocher: We operate in categories that are growing, and we have a great customer base that continues to win in the marketplace. We are thrilled to be able to support their growth. We expect the trajectory of our growth to continue to be driven by growth among our existing customers, share gains with our existing customers, the acquisition of new customers, and TAM expansion. I'm excited about our new business development efforts and the opportunities on the horizon.

Brian W. Kocher: We are thrilled to be able to support their growth.

Brian W. Kocher: We expect the trajectory of our growth to continue to be driven by growth of our existing customers.

Brian W. Kocher: Share gains with our existing customers the acquisition of new customers and Tam expansion.

Brian W. Kocher: I'm excited about our new business development efforts and the opportunities on the horizon.

Brian W. Kocher: Number two increasing the efficiency and the effectiveness of our supply chain.

Brian W. Kocher: Number two, increasing the efficiency and the effectiveness of our supply chain. As mentioned, we have made progress in increasing the output of our manufacturing facility. We are simultaneously working on numerous initiatives to improve labor costs, waste, inventory management, conversion costs, and a host of other key operating metrics. Importantly, this is a journey integrating multiple people, processes, and technology platforms.

Brian W. Kocher: As mentioned, we made progress in increasing the output of our manufacturing facilities.

Brian W. Kocher: We are simultaneously working numerous initiatives to improve labor cost waste inventory management and conversion cost and a host of other key operating metrics.

Brian W. Kocher: Fortunately this is a journey integrating multiple people processes and technology platforms and my highest leadership priority is ensuring we are taking a step forward in operational excellence every day.

Brian W. Kocher: And my highest leadership priority is ensuring that we are taking a step forward in operational excellence every day. To continue delivering strong volume gains, it is essential that we optimize our production to support the demand side momentum in our business and expand our gross margin. Number three, manage our capital wisely.

Brian W. Kocher: To continue delivering strong volume gains it is essential that we optimize our production to support the demand side momentum in our business and expand our gross margin.

Brian W. Kocher: Number three managed our capital wisely, we remain disciplined in executing our capital allocation priorities and continue to be focused on deleveraging over the near term.

Brian W. Kocher: We remain disciplined in executing our capital allocation priorities and continue to be focused on deleveraging over the near term. In summary, we're off to a great start in 2024, and our team is executing well across our strategic priorities. While we are encouraged by our results, we expect to continue getting better. We have a great opportunity to continue delivering strong revenue and EBITDA growth to drive significant shareholder value, and we are relentlessly focused on accomplishing this goal.

Brian W. Kocher: In summary, we're off to a great start in 2024, and our team is executing well across our strategic priorities.

Brian W. Kocher: While we are encouraged with our results we expect to continue getting better.

Brian W. Kocher: We have a great opportunity to continue delivering strong revenue and EBITDA growth to drive significant shareholder value.

Brian W. Kocher: We are relentlessly focused on accomplishing this goal.

Brian W. Kocher: We know that Sunopta's true potential is so much greater, and we are still very early in the operational excellence phase of our transformation. As we continue to optimize our assets to drive volume and revenue growth. The efficiencies we realize should propel even greater improvements in profitability and increasing rates of return. I'm confident in our outlook and the direction of our business, and we are on track to delivering our 2024 guidance and midterm financial goal. I am looking forward to updating you on our strategic initiatives throughout the year. Now, I'll turn the call over to Greg to cover the first quarter and full year outlook in more detail.

Brian W. Kocher: We know that sent off district potential is so much greater.

Greg: And we are still very early in the operational excellence phase of our transformation.

Greg: As we continue to sweat our assets to drive volume and revenue growth.

Greg: <unk>, we realize should propel even greater improvements in profitability and increasing rates of return.

Greg: I'm confident in our outlook and the direction of our business and we are on track for delivering our 2020 for guidance and mid term financial goals.

Greg: I am looking forward to updating you on our strategic initiatives throughout the year.

Brian W. Kocher: Now I will turn the call over to Greg to cover the first quarter and full year outlook in more detail.

Greg: Thank you, Brian and good afternoon, everyone as Brian said, we had a strong first quarter revenue of $183 million was up 18% compared to last year driven by volume growth.

Greg Gaba: Thank you, Brian, and good afternoon, everyone. As Brian said, we had a strong first quarter. Revenue of $183 million was up 18% compared to last year, driven by volume growth. Gross profit increased $7.7 million, or 32%, to $31.7 million in the quarter. Gross margin for the quarter was 17.4%, a 190 basis point increase from 15.5% in the prior year period. Adjusted gross margin was 17.5%, down 180 basis points from the prior year period, mainly reflecting 90 basis points of incremental depreciation related to new production equipment, together with an increase in inventory reserves, partially offset by improved plant utilization stemming from strong volume growth.

Greg Gaba: Gross profit increased seven 7 million or 32% to $31 7 million in the quarter.

Greg Gaba: Gross margin for the quarter was 17, 4% a 190 basis point increase from 15, 5% in the prior year period.

Greg Gaba: Adjusted gross margin was 17, 5% down 180 basis points in the prior year period.

Greg Gaba: Reflecting 90 basis points of incremental depreciation related to new production equipment.

Greg Gaba: Together with the increase in inventory reserves, partially offset by improved plant utilization stemming from strong volume growth.

Greg Gaba: Operating income increased to $10.2 million from $0.5 million in the year-ago period, driven by profitable volume growth and the gain on sale of the Smoothie Bowl product line of $1.8 million. Earnings from continuing operations were $3.8 million compared to a loss of $2.8 million in the prior year period. The increase was primarily driven by the flow through profitable volume growth.

Speaker Change: Operating income increased to $10 2 million from <unk> 5 million from a year ago period, driven by profitable volume growth and the gain on sale of the slightly broad product line of $1 8 million.

Greg Gaba: Earnings from continuing operations was $3 8 million compared to a loss of $2 8 million in the prior year period.

Greg Gaba: The increase was primarily driven by the military with profitable volume growth.

Greg Gaba: Suggested EBITDA from continuing operations increased 21% to $22.6 million compared to $18.7 million last year. Turning to our balance sheet, at the end of the first quarter, debt was $259 million, resulting in leverage of 3.1 times, down from 3.4 times last quarter. Cash provided by operating activities of continuing operations during the first quarter was $7.4 million, and cash used in investing activities of continuing operations was $4.2 million. Subsequent to the end of the quarter, we completed an amendment to the Series B preferred stock that eliminated dividend rates. While we could have forced conversion to common shares, doing so would have caused Oaktree to exceed the exchange cap. Therefore, we mutually agree to this amendment.

Greg Gaba: Adjusted EBITDA from continuing operations increased 21% to $22 6 million compared to $18 7 million last year.

Greg Gaba: Turning to our balance sheet at the end of the first quarter with $259 million, resulting in leverage of three one times down from three four times last quarter.

Greg Gaba: Cash provided by operating activities of continuing operations. During the first quarter was $7 4 million in cash used in investing activities of continuing operations was $4 2 million.

Greg Gaba: Subsequent to the end of the quarter, we completed an amendment to the series B preferred stock that eliminated dividend rates.

Greg Gaba: While we could have forced conversion to common shares during so would've caused ultra exceeding the exchange caps. Therefore, we mutually agreed to this amendment.

Greg Gaba: Now returning to our full year outlook, we are raising our 2024 outlook to reflect the strong performance in Q1. We now expect revenue in the range of $685 to $715 million, which represents growth of 9% to 13% versus our prior guidance of 6% to 11%. From a profit perspective, we now expect adjusted EBITDA of $88 to $92 million, which represents growth of 12% to 17% versus our prior guidance of 11% to 17%.

Greg Gaba: Now turning to our full year outlook.

Greg Gaba: We are raising our 2024 outlook to reflect the strong performance in Q1, we now expect revenue in the range of $685 million to $715 million, which represents growth of 9% to 13% versus our prior guidance of 6% to 11%.

Greg Gaba: From a profit perspective, we now expect adjusted EBITDA of $88 million to $92 million, which represents growth of 12% to 17% versus our prior guidance of 11% to 17%.

Greg Gaba: From a pacing standpoint, we continue to see the back half of the year to be slightly stronger than the first half, with a revenue split of approximately 49% first half and 51% second half, and adjusted EBITDA split of approximately 47% first half and 53% second half, reflecting the expected benefits in the second half of the year from our Supply Chain Excellence Program that Brian discussed earlier. From a leverage standpoint, we expect to be under three times leveraged by the end of this year, recalling that in Q2, we expect an increase in debt, as we will have roughly $25 million of debt from the capital lease related to the oak extraction expansion at Modesto coming online.

Greg Gaba: From a pacing standpoint, we continue to see the back half of the year to be slightly stronger than the first half with a revenue split of approximately 49% first half, 51% second half and adjusted EBIT display of approximately 47% first half 53% second half.

Greg Gaba: Reflecting the expected benefit in the second half of the year from our supply chain Excellence program that Brian discussed earlier.

Greg Gaba: From a leverage standpoint, we expect to be under three times levered by the end of this year recall that in Q2, we expect an increase in debt as we will have roughly $25 million of debt from the capital lease related to the extraction expansion and the desktop coming online.

Greg Gaba: Given current interest rates and expected debt levels, we expect interest expense of $24 million to $26 million for the year. We continue to expect capital expenditures on the cash flow statement of approximately $25 to $30 million and free cash flow of $35 to $45 million for 2024. In terms of cadence, we expect free cash flow generation to be largely back half-weighted.

Greg Gaba: Given current interest rates and expected debt levels, we expect interest expense of 24 to 26 million for the year.

Greg Gaba: We continue to expect capital expenditures on the cash flow statement of approximately $25 million to $30 million and free cash flow of 35% to $45 million for 2024.

Greg Gaba: In terms of cadence, we expect free cash flow generation to be largely back half weighted.

Speaker Change: Before opening the call for questions. Just a reminder that for competitive reasons, we do not provide detailed commentary regarding customer SKU level activity and with that operator. Please open the call for questions.

Operator: Before opening the call for questions, just a reminder that, for competitive reasons, we do not provide detailed commentary regarding customer or SKU-level activity. And with that, operator, please open the call for questions. Thank you. If you'd like to ask a question, press star 1.

Operator: Thank you if you'd like to ask a question press star one on your telephone keypad. If your question has been answered and you would like to remove yourself from the queue Press Star one.

Operator: Thank you. If you would like to ask a question, press star 1 on your telephone keypad. If your question has been answered and you would like to remove yourself from the queue, press star 1. We'll pause for just a moment to compile the Q&A roster. Your first question is from the line of Jon Andersen with William Blair.

Jon Robert Andersen: Well pause for just a moment yucatan the Q&A roster.

Operator: Okay.

Operator: Your first question is from the line of Jon Andersen with William Blair.

Jon Robert Andersen: Good afternoon everybody.

Jon Robert Andersen: Good afternoon, everybody. Thanks for the questions, and congratulations on a strong start to the year. I guess I wanted to start by asking about your guidance. It sounds as though your outlook for category growth has not changed. I think you mentioned, again, mid-single digits, which is consistent with, I think, what you talked about last quarter. But again, you took the revenue up for the year, so I kind of want to get a sense from you on where you saw stronger performance, or what was the source of the upside relative to planning Q1, and what gives you conviction kind of this early in the year, given some of the noise out there around consumer trends, and Thanks.

Speaker Change: Thanks for the questions and congrats on a strong start to the year.

Jon Robert Andersen: Yeah.

Jon Robert Andersen: I guess I wanted to start by asking about your guidance that the it sounds as though your outlook for.

Jon Robert Andersen: Category growth has not changed I think you mentioned again mid single digits.

Jon Robert Andersen: Which is consistent with I think what you talked about last quarter.

Jon Robert Andersen: But again you took the revenue up for the year, So I'm kind of want to get a sense from you on where you saw the stronger performance or.

Jon Robert Andersen: What was the source of the upside relative to plan in Q1, and what gives you conviction kind of this early in the year.

Jon Robert Andersen: Given some of the noise out there.

Jon Robert Andersen: Around consumer trends in particularly in foodservice of late that.

Speaker Change: You know that that that outlook for the category in the businesses is supportive of a raise at this point. Thanks.

Brian W. Kocher: Hey Jon, thanks a lot for joining the call and thanks for your question. Let me try to unpack a couple of different things.

Speaker Change: Hey, John Thanks, a lot for joining the call and thanks for your question.

Brian W. Kocher: If I look at the quarter, we've consistently said this shelf stable category in the markets we serve is growing in the mid single digits, and I think our performance, which, again, for the second quarter in a row, is probably close to three times what we believe the category is growing. Our performance is really driven by expansion with existing customers, acquisition of new customers, and then TAM expansion. And if I look over the quarter, about each one of those was equal.

Speaker Change: Let me try to unpack a couple of different things if I look at the quarter, we we've kind of consistently said.

Brian W. Kocher: This this shelf stable category in the markets, we serving are growing in that mid single digits.

Brian W. Kocher: And I think.

Brian W. Kocher: Our performance, which again for the second quarter in a row is probably close to three times. What we believe the category is growing our performance really is driven by expansion with existing customers.

Brian W. Kocher: Acquisition of new customers, and then and then Tam expansion and if I look over the quarter about each one of those were were equal we actually grew a little bit more with with our existing customers with either share or innovation than than maybe in some of the other categories, but but it is it is realm.

Brian W. Kocher: Tivoli close to being even when you look at our revenue growth from quarter, one of 23% quarter one of 24.

Brian W. Kocher: So that's kind of the revenue growth question, let me talk too specifically about our outlook because I think it's something really really important for the last three quarters done off does is kind of stuck with a philosophy that that said.

Brian W. Kocher: We actually grew a little bit more with our existing customers in terms of either share or innovation than maybe in some of the other categories, but it is relatively close to being even when you look at our revenue growth from quarter one of 23 to quarter one of 24. So that's kind of the revenue growth question. Let me talk to you specifically about our outlook because I think it's something really, really important. For the last three quarters, Sunopta has kind of stuck with a philosophy that said we're going to take what we see, customers, products, timing of new business, and current customer orders. We're going to take and communicate what we see, not what we hope.

Brian W. Kocher: We're going to take what we see customers products timing of of new business and current customer orders, we're going to take and communicate what we see not what we hope and I think thats, a really important thing to remember as we talk about our guidance.

Brian W. Kocher: And I think that's a really important thing to remember as we talk about our guidance. Remember, we have a really diverse revenue stream. Channels are diverse, customers are diverse, products are diverse. I mean, our food service channel grew 11% in the quarter. Our top three customers, each of them grew over 10% plus in the quarter. So we've got a lot of diversity.

Brian W. Kocher: Remember, we have a really diverse.

Brian W. Kocher: Revenue stream channels, our diverse customers in diverse products are diverse I mean, our foodservice channel grew 11% in the quarter, our top three customers each of them grew over 10% plus in the quarter. So we've got a lot of diversity and I think that's one thing that we've gained confidence in but I think even more.

Brian W. Kocher: And I think that that's one thing that we've gained confidence in. But, even more importantly, when we look at the balance of the year guidance. Certainly, public information and category trends inform our guidance. I would say it influences our guidance, but remember, we have daily and weekly calls with our customers about order volumes, order forecasts, customer innovation, and promotion activity. Those are what inspire and generate our guidance.

Brian W. Kocher: Importantly, when we look at the balance of the year guidance.

Brian W. Kocher: Certainly the public information in the category trends in form our guidance I would say that informs our guidance, but remember, we're having daily and weekly calls with our customers on order volumes are in order forecast on customer innovation on promotion activity.

Brian W. Kocher: Those are what inspire and generate our guidance. So the category data informs what we really base our guidance on is what we can see versus what we hope happens and I hope that's a little insight into the balance of the year and how we feel and think about the year shaping up for us.

Brian W. Kocher: So, the category data informs us, but what we really base our guidance on is what we can see versus what we hope happens. And I hope that's a little insight into the balance of the year and how we feel and think about the year shaping up for us.

Jon Robert Andersen: Yeah, that's very helpful. Thanks for that.

Speaker Change: Yes, that's very helpful. Thanks for that.

Brian W. Kocher: Just sticking with the guidance for a minute, it looks like you took sales up about $15 million or so at the midpoint, and EBITDA just a little bit at the midpoint, half a million dollars or something. Is there anything to read into that? Or is it just me saying something there around the complexion of those incremental sales and maybe costs associated with serving?

Speaker Change: Just sticking with the guidance for a minute. It looks like you took sales up about $15 million or so at the midpoint EBITDA just a little bit at the midpoint half a million dollars or something is is is there anything to read into that.

Brian W. Kocher: Or is it.

Brian W. Kocher: I mean anything there around the complexion of those incremental sales and maybe costs associated to serve.

Brian W. Kocher: You know, Jon, what we really tried to do was be very simple. We raised the guidance based on our overperformance in the first quarter. So it just really was simple that way.

Speaker Change: You know what.

Brian W. Kocher: John what we really tried to do is be very simple.

Brian W. Kocher: <unk> raised the guidance by the over performance in the first quarter.

Brian W. Kocher: Again, we look at, or I'm really excited about our new business development activities. I mean, we've got discussions going on again, weekly with our customers about new business development, but we really wanted to focus in on, in our guidance, on what we can see. Customer, current customers, current products, current timing, versus what we hope. And so what you see in our guidance is that we've raised it by the amount of over-performance in the first quarter.

Brian W. Kocher: So.

Brian W. Kocher: It just really was simple that way again.

Brian W. Kocher: We look at are I'm really excited about our new business development activities. I mean, we've got discussions going on again weekly with our customers on new business development, but we really wanted to focus in and our guidance on what we can see customer current customers current products current time.

Brian W. Kocher: <unk> versus what we hope.

Brian W. Kocher: And so what you see in our guidance as we've raised it by the amount of over performance in the first quarter.

Jon Robert Andersen: Okay. And Brian, I know it's really important to you and a focus area on operational excellence and really getting the most out of the supply chain after, you know, a couple of years of really putting a lot of new capacity in place. You know, since you've been there for, you know, a few months now, how do you feel about both the progress? plans on that front and your ability, I guess, to kind of sweat the capacity that you've recently put in place to kind of deliver on those midterm goals? What are some of the initial learnings that would be helpful?

Brian W. Kocher: Okay, and Brian I know, it's really important to you in our focus area on operational excellence and really.

Jon Robert Andersen: Getting the most out of the supply chain. After a couple of years of really putting a lot of new capacity in place.

Brian: Since you've been there for a few months now.

Jon Robert Andersen: How do you feel about both the progress and the plans on that front and your ability I guess that kind of swept the capacity that you've recently put in place to kind of deal.

Jon Robert Andersen: Deliver on those midterm goals what are what are some of the.

Speaker Change: Initial learnings that would be helpful. Thanks.

Brian W. Kocher: Thanks.

Brian: John I think the way I would describe it overall is I'm.

Brian W. Kocher: Jon, I think the way I would describe it overall is that I'm pleased with the first quarter. We increased output by over 20% to satisfy the demand we had on the sales side. You know, that's good. But, I think simultaneously, I'm not satisfied.

Brian: Pleased with the first quarter, we increased output over 20% to satisfy the demand we had on the on the sales side.

Brian W. Kocher: That's good I think simultaneously I'm not satisfied we have multiple simultaneous initiatives, we're pushing on anywhere from labor towards throughput.

Jon Robert Andersen: We have multiple simultaneous initiatives we're pushing on anywhere from labor to throughput to equipment maintenance to waste reduction. All of those we're pushing on, and I think we've got opportunities to reap improvement in each one of those metrics over the balance of the year. So we've got a ways to go. Please, but not satisfied is a phrase I would keep in your mind because it's certainly one in mine. Okay, thanks.

Jon Robert Andersen: Equipment maintenance to waste reduction all of those we're pushing on and I think we've got opportunities to.

Jon Robert Andersen: Reap improvement in each one of those metrics over the balance of the year. So we've got a we've got a ways to go.

Jon Robert Andersen: Pleased but not satisfied as a phrase I would I would keep in your mind because it certainly one in mind.

Operator: Okay, thank you very much.

Jon Robert Andersen: Okay. Thanks, Thank you very much.

Speaker Change: Hey, Thanks Jack.

Operator: Your next question is from the line of James <unk> with Stephens.

James Ronald Salera: Your next question is from a line by James Salera with Stevens.

James Ronald Salera: Hi, Good afternoon, guys. Thanks for taking my question and congrats on the strong results.

James Ronald Salera: Hi, good afternoon, guys. Thanks for taking our questions and congratulations on those strong results. Brian, I wanted to drill down on food service because, candidly, a lot of us are surprised at how robust the results were, given some of the commentary and traffic softness at some of the, you know, publicly traded comps in that space. Can you maybe walk us through the difference between your strong results and maybe some of the softness we've seen in traffic trends?

James Ronald Salera: Brian Thanks, gentlemen, I appreciate it.

James Ronald Salera: I wanted to drill down on foodservice because I.

James Ronald Salera: I think candidly a lot of us are.

James Ronald Salera: Surprised at how robust the results were given some of the commentary and traffic softness at some of the publicly traded comps in that space can you maybe walk us through the difference between your strong results and maybe some of the softness we've seen in traffic trends is that just a function.

James Ronald Salera: Is that just a function of you winning more share across food service? Or should we think about, you know, the plant-based beverages that you sell into that channel as being separate from, you know, the overall kind of traffic softness, and they're gaining share while maybe traditional, you know, dairy-based is losing?

James Ronald Salera: Of you winning more share across foodservice, where should we think about you know the.

James Ronald Salera: The plant based beverages that you sell into that channel as being separate from the overall kind of traffic softness and theyre gaining share while may be traditional.

James Ronald Salera: Gary basis, losing.

Speaker Change: Yes, Jim Thanks, a lot for the question because we really wanted to have a dialogue with the investment community on this and I would like to amend your question just slightly to say you were pleasantly surprised with the robustness of our growth.

Brian W. Kocher: Yeah, Jim, thanks a lot for the question because we really wanted to have a dialogue with the investment community on this. And I would like to amend your question just slightly to say you were pleasantly surprised by the robustness of our growth. But I think it really focuses on two areas.

Brian W. Kocher: Remember, we are wired in with our customers. We're having innovation discussions with our customers almost every week, certainly monthly with our top 15. And a lot of times, those innovation discussions are multiple projects that we're working on with them. So I think one part of what you'll see, and if you happen to go to a menu board at one of your favorite food service restaurants, I think you'd see a lot of promotion with plant-based products in it. You'd see a lot of categories, a lot of promotional items that have plant-based beverages in them. And so I think that's one thing where it may be a little bit disconnected.

Brian W. Kocher: But I think it really focuses in on two areas remember we are wired in with our customers.

Brian W. Kocher: There were having innovation discussion with discussions with our customers almost every week certainly monthly with our top 15.

Brian W. Kocher: And a lot of times that those innovation discussions are multiple projects that we're working on with them. So I think one part of what you'll see and if you happen to go to a menu board of one of your favorite.

Brian W. Kocher: Foodservice restaurants, I think you can see a lot of promotion with plant based product Senate you'd see a lot of categories a lot of promoting items that have plant based beverages in it and so I think that's one thing where it may be a little bit disconnected, we may even over index with respect to their in plant based products that a lot of foodservice places relative to.

Brian W. Kocher: We may even over-index with respect to their plant-based products at a lot of food service places relative to their total revenue line. So I think that our plant-based products are gaining market share, let's say, in some food service areas. That's one.

Brian W. Kocher: Their total.

Brian W. Kocher: Revenue line. So I think we are.

Brian W. Kocher: Our plant based products are gaining mix lets say in some foodservice areas. That's that's one two we did mentioned that we were growing share with our existing customers and that certainly is a component of it Tim but I think most importantly, we are constantly working on innovation innovation for promotions innovation.

Brian W. Kocher: Two, we did mention that we were growing our share with our existing customers, and that certainly is a component of it, Tim. But, I think most importantly, we are constantly working on innovation, innovation for promotions, innovation for limited-time offers, and again, innovation for what we see today, not what was happening three months ago, because we're with our customers. We're really wired in, and we're with them on a weekly and monthly basis working on R&D.

Brian W. Kocher: For a limited time offers.

Brian W. Kocher: And again innovation for what we see today, not what was happening three months ago, because with our customers, where we're really wired in and work with them on a weekly monthly basis working on R&D. So we're already innovating on anything from taste profiles and performance profile to potentially.

Brian W. Kocher: So we're already innovating on anything from taste profiles and performance profiles to potentially cost and efficiency initiatives in the store. So I think that answers your question on why it may be why our growth may be a little bit differentiated in a positive way from some of the larger trends you're seeing.

Brian W. Kocher: Cost and efficiency initiatives in the store. So I think hopefully that answers. Your question on why it may be while our growth may be a little bit differentiated in a positive way from some of the large trends youre seeing.

James Ronald Salera: Yeah, no, that's super helpful.

Speaker Change: Yes, no that's super helpful.

Brian W. Kocher: Jim, sorry to just hit this one more time, but just to be complete... Our food service business grew 11% this quarter, and our top three customers were all double-digit gross. So again, it kind of shows up in our numbers.

James Ronald Salera: And then.

Speaker Change: Tim sorry to just hit this one more time, but just to be complete.

Brian W. Kocher: Our foodservice business grew 11% this quarter and our top three customers were all double digit growth.

Brian W. Kocher: So again, it kind of shows up in our numbers.

Brian W. Kocher: Yeah, and that's great. If I can switch and ask a question on the nutritional shake side, can we just get an update on what your shake line utilization rate is? Because I know that's a category that's seen a ton of demand, and if we just think about the incremental upside as the year progresses, is there a meaningful upside to increasing the throughput on that line, and how much can you drive incremental sales by ramping up the shake line?

Speaker Change: Yes, yes, and Thats great.

Speaker Change: On if I can.

Brian W. Kocher: Switching and ask the question on the nutritional shake side can we just get an update for what you're shake line utilization rate of that because I know that's a category that has seen a ton of demand and if we just think about the incremental upside as the year progresses can you is there a meaningful upside to increase kind of the.

Brian W. Kocher: Throughput on that line and how much you can drive.

Brian W. Kocher: Incremental sales by ramping up the shake line.

Brian W. Kocher:

Brian W. Kocher: We don't really disclose utilization on the lines, but here's what I will tell you to try to give you some perspective. We are on track for achieving productivity and throughput, and I'm going to use this word in our investment thesis. And we're on track to do that in, let's say, the middle of this year, all right? The reason I say investment thesis is because we went through a certain set of assumptions to obviously fund the TAM expansion project. We're on track to reach those goals.

Speaker Change: We don't really disclose utilization on the lines, but here's what I will tell you to try to give you. Some perspective, we are on track for achieving the productivity and throughput and I'm going to use this word in our investment thesis.

Brian W. Kocher: We're on track to do that and let's say the middle of this year Alright. The reason I say investment thesis is because we went through a certain set of assumptions.

Brian W. Kocher: To obviously fund the Tam expansion project, we're on track to reach US I still believe supply chain is a never ending journey I think there is potentially upside in throughput on our supply chain not only specifically in our in our protein shake line, but across our network and that has a wonderful.

Brian W. Kocher: I still believe the supply chain is a never-ending journey. I think there's potentially an upside in throughput in our supply chain, not only specifically in our protein shake line but across our network. And that has the wonderful advantage of doing two things. One, it lowers your overall cost per unit, right? The more units you push through in a fixed cost network, the lower your per unit cost. But it creates that non-CAPEX capacity, and it allows us to fuel some growth without devoting capital assets.

Brian W. Kocher: The advantage of doing two things one lowering your overall cost per unit right. The more the more units you pushed through.

Brian W. Kocher: In our fixed cost network, the last year per unit cost, but it creates that non capex capacity and it allows us to fuel some growth without devoting capital assets.

Brian W. Kocher: Perfect.

James Ronald Salera: Perfect. Thanks guys. I appreciate the color.

Speaker Change: Thanks, guys I appreciate the color I'll hop back in the queue.

Speaker Change: Thank you Jim.

James Ronald Salera: Yes.

James Ronald Salera: Your next question is from the line of John Baumgartner.

Operator: Your next question is from the line of Jon Baumgartner from Missouho Capital. I do apologize for the delay.

Jon Baumgartner: Mr Hill capital.

Jon Baumgartner: Potash Securities.

Jon Baumgartner: Good afternoon, and thanks for the question.

Jon Baumgartner: Good afternoon, thanks for the question. Hey Jon, how are you?

Jon Baumgartner: Hey, John how are you.

Jon Baumgartner: Good, thanks. I guess, first question, Brian: you sound pretty bullish on the incremental efficiencies in the model for the back half from what sounds like a number of different sources. And I'm looking to tie it back to the minimal uptick in guidance for EBITDA for this year. Are there any offsets that are sort of contrary to your new efficiencies coming in the model? Are there any intermediate steps you have to take to get those efficiencies that maybe push the realization and the P&L into 2025? I mean, how do you think about the kind of cadence of the realization of those efficiencies coming through?

Jon Baumgartner: Good day.

Jon Baumgartner: I guess first question, Brian you sound pretty bullish on the incremental efficiencies in the model for the back half from it sounds like a number of different sources and I'm looking to tie it back to the you know the minimal uptick in guidance for EBITDA for this year are there any offsets that are sort of contra to your new efficiencies coming in the model.

Jon Baumgartner: Are there any intermediate steps you have to take to get those efficiencies that maybe pushed the realization in the P&L into 2025, I mean, how do you think about kind of the cadence of the realization of efficiencies coming through.

Brian W. Kocher: Okay, a couple things. First of all, there are no big risks that we see out there that are preventing efficiencies. I would say, Jon, more than anything, supply chain improvement is just hard, darn work. And so we're out there every single day.

Brian: Okay. A couple of things first of all there are no big.

Brian W. Kocher: Risks that are that we see.

Brian W. Kocher: Out there.

Brian W. Kocher: That are preventing efficiencies I would say John more than anything supply chain improvement is just hard doing work and so we're out there every single day I mean, you're talking about doing things with your.

Brian W. Kocher: I mean, you're talking about doing things with your procurement arm and when you source product. You're talking about how you manage water usage. You're talking about the sequence in which you run product to try to eke out a unit here or a unit there. So I don't want...

Brian W. Kocher: Procurement arm and when you source product Youre talking about how you manage water usage youre talking about the sequence that you run product to try to Eke out a unit here or a unit there so I don't want.

Brian W. Kocher: I don't want someone to look at the guidance and say there's a relatively meager uptick, right? That's not what we're about. We are confident. I'm confident in the business development pipeline, and I'm confident in our opportunity to drive supply chain growth. But we're also sticking to our communication philosophy, which is to guide and declare our outlook based upon the customer timing, products, and portfolio we see, not what we hoped for. And as we drive additional, Uh..., and additional business development efforts, we will close additional opportunities. The next time you'll hear me talk about them specifically, it'll be when they show up in the financials, and we update our guidance.

Brian W. Kocher: I don't want someone to look at at the guidance and say Theres, a relatively meager uptick right. That's not that's not what we're what we are confident I'm confident in the business development pipeline I am confident in our opportunity to drive supply chain growth, but we're also sticking to our communication philosophy, which is.

Brian W. Kocher: Guide and declare our outlook based upon the customer timing.

Brian W. Kocher: <unk> and and portfolio we see.

Brian W. Kocher: Not what we hoped for and as we drive additional.

Brian W. Kocher: Uh huh.

Brian W. Kocher: And additional business development efforts close additional opportunities there.

Brian W. Kocher: The next time, you'll hear me talk about those specifically it will be when they show up in the financials and we update our guidance.

Brian W. Kocher: Okay.

Greg Gaba: Okay. And then a follow-up for Greg. Can you just walk through, coming back to that modest margin leakage and the inventory reserves in the quarter, can you walk through that in more detail and how we think about any associated drag going forward for the rest of the year?

Speaker Change: And then a follow up for Greg.

Greg Gaba: Can you just walk through coming back to that modest margin leakage in the inventory reserves in the quarter can you can you walk through that in more detail. How we think about any associated drag going forward for the rest of the year.

Greg Gaba: Yes, no problem John.

Greg Gaba: Yeah, no problem, Jon. So when you look at it, you know, Brian mentioned that we increased our production 20% versus the prior year, right? And it is a journey of supply chain efficiency and excellence. And with that, we did have a little bit of leakage. You know, we do strive to get better every day, and we continue to get better every day. And we're putting things in place that will hopefully reduce that waste going forward. And no, we don't consider it to be a long-term issue at all, Jon.

Greg Gaba: So when you look at it Brian mentioned that we increased our production 20% versus prior year right and it is a journey of supply chain efficiency and excellence and with that we did have a little bit of leakage.

Greg Gaba: We do strive to get better every day and we continue to get better every day and we're putting things in place that would hopefully reduce that waste going forward and now we don't consider it to be a long term issue at all China.

Speaker Change: Okay. Thanks for your time.

Brian W. Kocher: Jon, I think a good way to think about it and put it in perspective is that we're trying to work on nine different things at once in improving our 10, 12, whatever it is that we're doing to try to improve our supply chain operations. And we made progress for sure on output, but there are some others that we didn't make as much progress on. And we've got initiatives. We're happy with our initiatives. We're happy with our opportunity to drive improvement. But, as we said, there's a lot of complexity in doing this, and we believe this is something that we will continue to show progress on during the balance of the year.

Speaker Change: John I think a good way to think about it and put it in perspective is it we're trying to work on nine different things at once and improving our 10 12, whatever it is that we're doing to try to improve our supply chain operations and we made progress for sure on output.

Brian W. Kocher: But there are some others that we didn't make as much progress and we've got initiatives, we're happy with our initiatives, we're happy with our our opportunity to drive improvement, but as we said there is a lot of complexity in doing this and we believe this is something that we will continue to show progress with the balance of the year.

Jon Baumgartner: Thanks, Brian appreciate it.

Brian W. Kocher: Your next question is from the line of Brian Holland with D. A Davidson.

Brian Patrick Holland: Your next question is from the line of Brian Holland with DA Davidson.

Brian Patrick Holland: Yes, thanks, good afternoon.

Brian Patrick Holland: Yeah, thanks. Good afternoon.

Brian Patrick Holland: So I just wanted to maybe start by.

Brian Patrick Holland: Asking about the upside in the quarter I know the strength was broad based was the source of upside versus your internal expectations on the top line broad based as well or was it disproportionate towards new business development.

Brian W. Kocher: So, I just wanted to maybe start by, you know, asking about the upside in the quarter. I know the strength was broad-based. Was the source of upside versus your internal expectation on the top line broad-based as well? Or was it, you know, disproportionate towards new business development, et cetera? Because it doesn't sound like the category actually changed, or it seems like it was relatively consistent. So, I just want to make sure I understand the source of the upside versus your own internal expectations.

Brian W. Kocher: Et cetera, because it doesn't sound like the category actually changed or it seems like it was relatively consistent so just want to make sure I understand the source of the upside versus your own internal expectations.

Speaker Change: Brian I would say it was broad based as well I mean, if you look at it.

Brian W. Kocher: Brian, I would say it was broad-based as well. I mean, if you look at it, we did a little better than we thought, almost, whether it was new customer acquisition and the robustness and the timing of that, or growth with our existing customers, we had some favorability across the spectrum. And again, it kind of showed up everywhere. It showed up on channels, it showed up on customers. Almost any way you could cut this data, we saw growth. And so we're excited that a diverse revenue stream can help us in a quarter like this.

Brian W. Kocher: We did a little better than we thought almost whether it was new customer acquisition, and the robustness and the timing of that or growth with our existing customers.

Brian W. Kocher: We had some favorability.

Brian W. Kocher: Across the spectrum and again it kind of showed up everywhere. It showed up in channels that showed up in customers almost any way you could cut this data.

Brian W. Kocher: We saw growth in and so we're we're excited that that a diverse revenue stream can help us in in a quarter like this.

Speaker Change: Okay, that's great and then maybe just.

Brian Patrick Holland: Okay, that's great. And then maybe just to go back to this, I appreciate all the detail that you went into about, you know, how you pull together your forecasting that you communicate to the investment community. That's very helpful.

Brian Patrick Holland: Go back to this I appreciate all the.

Brian Patrick Holland: Detail that you went into about how you pull together you're forecasting that you communicate.

Brian Patrick Holland: To the investment community community.

Brian Patrick Holland: Very helpful.

Speaker Change: But just to make sure that we understand.

Brian W. Kocher: But just to make sure that we understand, you know, what specifically is different? I mean, I think you alluded to this, but I want to ask it anyway: what are you doing differently versus maybe 12 months ago, right? Because I think we started out the year strong last year as well, with a lot of optimism, and then sort of the bottom fell out midway through the year. And I know that we've gone through that a bunch of different times. But just understanding any pivots in the way that you approach your modeling, at least to the extent that you communicated it to the street here? Brian, yes, I think there is a change.

Brian W. Kocher: What specifically is different I think you alluded to this but I want to I want to ask it anyway.

Brian W. Kocher: What youre doing differently versus maybe 12 months ago right because I think we started out the year strong last year as well.

Brian W. Kocher: A lot of optimism and then sort of the bottom fell out mid year and I know, we've gone through that a bunch of different types, but just understanding.

Brian W. Kocher: <unk>.

Brian W. Kocher: Any pivots in the way that you.

Brian W. Kocher: Approach.

Brian W. Kocher: Your your modeling at least to the extent that you've communicated to the street here.

Brian W. Kocher: Well.

Brian W. Kocher: Brian, yes, I think there is a change, and that happened before I got here. I think Sunopta had the benefit of some business development efforts last year, but the timing was off. And so as they communicated expectations, and then the timing shifted for one reason or another, you know, it led to disappointment. And in the third quarter results of last year, it was probably the third quarter results of last year when Sunopta even said, second quarter results, maybe when Sunopta said, look, this is how we're going to forecast going forward.

Brian W. Kocher: Brian Yes, I think there is a change and that happened before I got here.

Brian W. Kocher: Thank <unk>.

Brian W. Kocher: Had the benefit of some business development efforts last year, but the timing was off and so as they communicated expectations and then the timing shifted for one reason or another.

Brian W. Kocher: It led to a disappointment and.

Brian W. Kocher: And I was probably the third quarter results of last year, when when sign off to even said.

Brian W. Kocher: Second quarter results, maybe <unk> said look this is how we're going to forecast going forward.

Brian W. Kocher: And and.

Brian W. Kocher: And I think that, to me, makes a lot of sense. We want to guide based upon what we know and have visibility into, customers, products, and timing versus what we hope happens. Now, again, you know, timing is always interesting with customers, but I think, look, we're trying to be consistent there. We're trying to focus on the things that we have visibility into with respect to customers, products, and timing.

Brian W. Kocher: I think that to me makes a lot of sense, we want to guide based upon what we know and have visibility to customers' products timing versus what we hope happens.

Brian W. Kocher: Now again.

Brian W. Kocher: <unk> is is always interesting with customers, but I think look we're trying to be consistent there. We're trying to focus on the things that that we have visibility to with respect to customers products and timings and not hope for guidance.

Speaker Change: Are you still there.

Brian W. Kocher: Yes, I'm sorry, yes.

Brian Patrick Holland: Yeah, sorry. Yep. Oh, great. I appreciate the color, Brian.

Brian Patrick Holland: The color Brian.

Speaker Change: They've moved alright, thank you very much.

Brian Patrick Holland: Alright.

Brian Patrick Holland: Your next question is from Ryan Meyers with Lake Street capital markets.

Ryan Robert Meyers: Your next question is from Ryan Meyers with Lake Street Capital Markets.

Ryan Robert Meyers: Hey, guys. Thanks for taking my question.

Ryan Robert Meyers: Thanks for taking my questions. It sounds like the growth was broad-based, but I'm curious, as you communicated, that prices have come down a little bit. Have you seen any improvement in the track channels? I know that's a smaller portion of revenue, but just kind of curious what the dynamic of that is.

Ryan Robert Meyers: It sounds like the growth was broad based but I'm curious as you communicated that prices have come down a little bit I mean have you seen any improvement in the tracked channels.

Ryan Robert Meyers: The smaller portion of revenue, but just kind of curious what the with the dynamic with that is.

Speaker Change: Brian I appreciate the question on track channels.

Brian W. Kocher: Ryan, you know, appreciate the question on track channels. We have seen I wouldn't say go so far as to say we've seen improvement in the track channels.

Ryan: We have seen.

Ryan: I wouldn't say go so far as to say we've seen improvement in the in the tracked channels you know you'll see a little bit of volatility you see a little bit of promotion I think one of the advantages of sought after.

Ryan Robert Meyers: You know, you see a little bit of volatility; you see a little bit of promotion. I think one of the advantages of Sunopta is our customer relationships with winning customers. And what winning customers look like to me are those that are innovating, those that we can co-develop solutions for, those that are investing in their brands, and those that, ultimately, are growing faster than the category. And if you look at all the brands that we support in the track channels, the brands we support are growing and performing 300 to 400 basis points better than the category, whether it's in the 52-week look or the 26-week look. And I think that's one thing that, again, creates a little bit of divergence between how we can perform versus the overall track channel, which is positive divergence, by the way.

Ryan Robert Meyers: Is our customer relationships with winning customers and what winning customers looked like to me are those that are innovating.

Ryan Robert Meyers: That we can co develop solutions for those that are investing behind their brands and those that ultimately are growing faster than the category and if you look at all the brands that we support in in tracked channels. The brands we support are growing.

Ryan Robert Meyers: And performing outperforming 300, 400 basis points better than than the category.

Ryan Robert Meyers: Whether it's in the 52 week look or the 26 week look and I think that's one thing that that again creates a little bit of divergence between how we can perform versus the overall tracked channels.

Speaker Change: Got it.

Ryan Robert Meyers: By the way.

Brian W. Kocher: Okay, no, that's helpful to understand. And then, you know, it didn't sound like there was a lot of this during the quarter, but I am curious if there's any way that you guys can quantify new customers or any sort of impact of bringing new customers on board.

Speaker Change: Okay. No that's helpful to understand and then it didn't sound like there was a lot of this during the quarter, but I am curious if there's any way that you guys can quantify new.

Speaker Change: New customer is there any sort of impact of bringing new customers on board.

Brian W. Kocher: Yes, I think I mentioned at the beginning of Q&A, if we split revenue growth between Tam expansion.

Ryan Robert Meyers: Yeah, I think I mentioned at the beginning of the Q&A that if we split revenue growth between TAM expansion, expansion, or share wallet gains with our existing customers and new customers, the growth with existing customers was probably the largest of those three, but it was relatively broad-based.

Ryan Robert Meyers: Expansion of our share of wallet gains with our existing customers and new customers.

Ryan Robert Meyers: The growth with existing customers was was probably the largest of those three but it was relatively broad based.

Speaker Change: Got it thank you for taking my questions.

Ryan Robert Meyers: Got it. Thank you for taking my questions. Sure.

Ryan Robert Meyers: Sure.

Ryan Robert Meyers: Okay.

Ryan Robert Meyers: Our next question is from the line of Andrew <unk>.

Andrew Strelzik: Our next question is from the line of Andrew Strelzik with BMO.

Andrew Strelzik: With BMO.

Andrew Strelzik: Hey, good afternoon, thanks for taking the questions.

Andrew Strelzik: And good afternoon. Thanks for taking the questions. I wanted to maybe go back to some of the supply chain opportunities that you've talked about, which I know you've already addressed several times here, but I wanted to try again and maybe think about the 2025 outlook that was provided, you know, obviously well before you joined and started attacking a lot of the supply chain opportunities. And so I guess what I'm curious about is

Andrew Strelzik: I wanted to maybe go back to some of the supply chain opportunities that you've talked about which I know you've already addressed several times here, but I wanted to try again and maybe thinking about the 2025 outlook that.

Andrew Strelzik: Had been provided obviously well before you joined.

Andrew Strelzik: And started attacking a lot of the supply chain opportunities and so.

Andrew Strelzik: I guess, what I'm curious about is.

Andrew Strelzik: Is it fair then to think that whatever that contributes or materializes into, whatever that bucket looks like, would be incremental to the guidance that was put out there for 2025, or is that not a fair way to look at it?

Andrew Strelzik: Is it fair then to think that.

Andrew Strelzik: Whatever that.

Andrew Strelzik: <unk>.

Andrew Strelzik: Contributes or materializes into whatever that bucket looks like would be incremental to the guidance that was put out there for 2025 or is that not a fair way to look at it.

Brian W. Kocher: Yeah, Andrew, I think the way I would look at that is... The guidance, which again, we thought we could get to $125 million in EBITDA run rate at the end of 25, beginning of 26. That included some revenue growth and certainly included some margin expansion. In fact, if you look at the last time Sunopta plants were full, it was about a 20% gross margin, and we expect, again, when we're quote-unquote full, sort of at the end of 25, beginning of 26, that we would be right around that 20% gross margin amount.

Speaker Change: Yeah, Andrew I think the way I would look at that is.

Brian W. Kocher: The guidance, which again, we thought we could get to $125 million EBIT run rate at the end of 'twenty five beginning of 'twenty six that included some revenue growth.

Brian W. Kocher: It certainly included some some margin expansion in fact, if you look at the last time Sun up the plants were full it was about a 20% gross margin and we expect again when were quote unquote full sort of at the end of 'twenty five beginning of 'twenty six that we would be right around that 20%.

Brian W. Kocher: <unk> gross margin.

Brian W. Kocher: So that is all baked into, I would say, baked in or considered is probably a better word in that 125 million guidance. Now, longer term. Longer term, Greg and I have both spoken publicly about our opportunity to maybe get a little bit better than 20% because, again, you are never finished with supply chain initiatives, supply chain efficiency, and supply chain effectiveness. So that's one thing I can guarantee you we'll never stop working on. So hopefully that helps in terms of the $125 million midterm guidance.

Brian W. Kocher: So that is all baked into I would say baked in or considered as probably a better word in that $125 million guidance now longer term.

Brian W. Kocher: Longer term, Greg and I have both spoken publicly about our opportunity to maybe get a little bit better than 20%. Because again you are never finished on supply chain initiatives supply chain efficiency and supply chain effectiveness. So.

Brian W. Kocher: That's one thing I can guarantee you we will never stop working model.

Brian W. Kocher: Okay, So I hope that making the farms.

Brian W. Kocher: In terms of the 125 million dollar midterm guidance.

Andrew Strelzik: Yeah, I mean, I guess it sounds more incremental than that, but that is helpful context for sure. And then I guess my other question is just about capital allocation. And I know you talked about 2Q, debt levels are going to go up, and leverage is going to go up. But, you know, you're not far away from a timeline perspective from getting to your leverage targets that you seem very confident in achieving. So, you know, you talked about some capital projects that are under consideration.

Speaker Change: Yeah, I mean, I guess, it sounds more incremental than that but.

Andrew Strelzik: But that is helpful context for sure.

Andrew Strelzik: And then I guess my other question is just about capital allocation and I know you talked about <unk> debt levels are going to go up leverage is going to go up but you're not far away from a timeline perspective from from getting to your leverage targets that you seem very confident in achieving so you talked about some capital projects that are under <unk>.

Andrew Strelzik: Iteration.

Andrew Strelzik: Just curious if you could kind of elaborate on what you are thinking about there and any other I know you've talked about whether it's M&A or buybacks. How are you kind of rank order some of those opportunities once you do get to those leverage targets.

Andrew Strelzik: I'm just curious if you could kind of elaborate on what you're thinking about there and any other, I know you've talked about whether it's M&A or buybacks, how you kind of rank order some of those opportunities once you do get to those leverage targets.

Speaker Change: Yes, thanks for the question so our capital allocation.

Greg Gaba: Andrew, thanks for the question. So our capital allocation strategy remains the same, right? So once we get to under three times levered, which we believe will be by the end of this year, we will look at three things, right? We'll look at attractive ROI projects. We'll look at potential share buybacks based on the stock price at that point in time or attractive M&A deals. So those continue to be the options we continue to evaluate every day. And once we get there, towards the end of the year, we'll give you further updates.

Greg Gaba: Our strategy remains the same right. So once we get to under three times Levered, which we believe will be by the end of this year. We will look at three things right. We'll look at attractive ROI projects will look at potential share by share buybacks based on the stock price at that point in time or attractive M&A deals. So those continue to be the options. We continue to evaluate every day.

Andrew Strelzik: Okay, I tried. Thank you very much.

Andrew Strelzik: Once we get there towards the end of the year, we will give you a further update.

Speaker Change: Okay. Thank you very much.

Andrew Strelzik: Your next question is from the line of Danielle <unk> with <unk>.

Daniel William Biolsi: Your next question is from the line by Daniel Bolles with Hedge Eyes.

Daniel William Biolsi: Hi, Thanks. Thanks for the question. So from your vantage point, what have you seen from price increases in the foodservice channel and what that has done to their demand and can you follow that when they raised prices has that impacted demand or do you see that in another way.

Daniel William Biolsi: Hi, thanks for the question. So from your vantage point, what have you seen from price increases in the food service channel and what that has done to their demand? And can you follow that, you know, when they raise prices, has that impacted demand? Or do you see that in another way?

Brian W. Kocher: Thanks, Daniel, for the question. I think there probably are...

Speaker Change: Thanks, Daniel for the question.

Speaker Change: Think there probably are.

Brian W. Kocher: Some impacts in food service with increased prices, you know, what you see, maybe on what I'll call the less frequent or the fringe consumer, what we see more and more are food service providers planning for promotional and limited-time offers. And I think that's an area that we can really help our customers. We can deploy our 20-plus food scientists to help engineer new recipes, or we can help them with a broad-based supply plan.

Speaker Change: Some impact seen in foodservice with increased prices, what you see maybe on what I'll call the less frequent or the or.

Brian W. Kocher: The frames consumer.

Brian W. Kocher: What we see more and more our foodservice providers planning for promotional and limited time offers and I think thats an area that we can really help our customers. We can we can deploy our 20 plus food scientists to help engineer new recipes, we can help them with a broad based.

Brian W. Kocher: So I think it's kind of two tales of the story, Daniel, that yes, the category may have some fringe users that are, let's say, a little bit more price sensitive than your frequent or target users. But even our customers are targeting promotional activity to help drive growth across the network and across the category.

Brian W. Kocher: Supply plan, so I think it's kind of a.

Brian W. Kocher: Two two tails of the story Daniel is is yes. The category may have some fringe users that are let's say a little bit more price sensitive than your than your frequent our target users, but even the our customers are targeting promotional activity to help drive growth.

Brian W. Kocher: Across the network and across the category.

Daniel William Biolsi: Thanks, Brian. So new contract wins were part of the upside in the quarter, but are you not including that continuing in the second half with the raised guidance you had today? No, no.

Brian W. Kocher: Thanks, Brian So new contract wins were part of the upside in the quarter, but are you not including that continuing in the second half with the raised guidance go ahead today no no sorry, Daniel Thanks for the clarifying question Thats really good because we don't want to Miscommunicate I think what we're trying to say is remember we're still guide.

Brian W. Kocher: No, no, sorry, Daniel. Thanks for the clarifying question. That's really good, because we don't want to miscommunicate. I think what we're trying to say is, "Remember, we're still guiding for the year." I think the midpoint is 9% revenue growth. The midpoint is 11, sorry, 11% revenue growth. So we're still guiding for pretty hefty revenue growth year over year. And I think what we were trying to articulate is the business development efforts that were announced in 23 and, although the timing was maybe a little off, you're seeing the benefit of that in 24, and you will continue to see the benefit of that in 24, for us to achieve our midpoint 11% revenue growth.

Brian W. Kocher: <unk> for the year.

Brian W. Kocher: The midpoint is 9% revenue growth.

Brian W. Kocher: Mid point is 11, sorry, 11% revenue growth.

Brian W. Kocher: So we're still guiding for a pretty hefty.

Brian W. Kocher: Revenue growth year over year, and I think what we were trying to articulate is the the business development efforts that were announced in 'twenty three and the timing was maybe a little off youre seeing the benefit of that in 'twenty four and you will continue to see the benefit of that in 'twenty four for us to achieve.

Brian W. Kocher: Our mid point, 11% revenue growth.

Brian W. Kocher: Okay.

Speaker Change: That makes sense and then if I could ask one last question for Greg.

Daniel William Biolsi: And then, if I could ask one last question for Greg, just what's behind the inventory reserves? Is that just spoilage or...? Yeah.

Speaker Change: Whats behind the inventory reserves is that just spoilage or.

Speaker Change: Yes, great question Dennis.

Greg Gaba: Yeah, great question, Daniel. So, as you know, we mentioned that our output has significantly increased in our plans versus prior year, right up 20% versus prior year. However, we need to get, you know, and there's opportunity to improve our efficiency of that output. And we did have a little bit more waste than we wanted. And we're working on getting better.

Greg Gaba: We mentioned that our output as a significantly increase in our plants versus prior year rate of 20% versus prior year.

Greg Gaba: We need to get and there is opportunity to improve our efficiency of that output and we did have a little bit more waste and that what we wanted and that we're working on getting better okay.

Daniel: Okay. Thank you.

Speaker Change: Thanks, Dan.

Greg Gaba: Okay.

Operator: At this time, there are no further questions. I will now hand today's call over to Brian Kocher for any closing remarks.

Greg Gaba: At this time there are no further questions I will now hand todays call over to Brian Clough for any closing remarks.

Brian W. Kocher: Thank you very much.

Brian W. Kocher: Thank you very much. I'd just like to take a couple of minutes to summarize our key messages. If you only take three things away from this call, please think about these three. First and foremost, we are a growing company in growing categories. In addition to the growth that we naturally see from our customers, our blue chip customer base, we're growing share with our existing customers, we're bringing on new customers, and we continue to grow via TAM expansion. Our revenue stream is diverse and resilient. Remember, in this quarter alone, our top three customers grew double digits. Each one of them grew double digits.

Brian W. Kocher: I'd just like to take it.

Brian W. Kocher: Couple of minutes to summarize our key messages. If you only take three things away from this call. Please think about these three first and foremost we are a growing company in growing categories. In addition to the growth that we naturally see from our customers are blue chip customer base, we're growing share with our existing customer.

Brian W. Kocher: Our food service channel revenue increased by 11% in the quarter. And almost every way you slice our revenue, we grew in Q1 of this year. And that's how you grow a quarter by 18%.

Brian W. Kocher: We're bringing on new customers and we continue to grow via Tam expansion. Our revenue stream is diverse and resilient remember in this quarter alone our top three customers grew double digits. Each one of them grew double digits.

Brian W. Kocher: Our foodservice channel revenue increased by 11% in the quarter.

Brian W. Kocher: And almost every way you slice of our revenue we grew.

Brian W. Kocher: So, one is revenue growth. Secondly, we will never stop working on supply chain excellence. We've talked about it in the Q&A. I'm proud of the increased production we've had in the quarter. Plus, 20% is not easy.

Brian W. Kocher: In Q1 of this year and that's how you grow it quarter by 18%. So one is revenue growth secondly, we will never stop working on supply chain excellence side, we've talked about it in the Q&A I'm proud of the increased production we've had in the quarter plus 20% is not easy.

Brian W. Kocher: That's how much we increased output in the quarter with our existing plants. We will continue to tighten and sharpen our other supply chain processes, and we expect to see that roll into our performance for the balance of the year in both margin improvement as well as supply for future growth. So, that's the second.

Brian W. Kocher: We've increased output in the quarter with our existing plants, we will continue to tightened and sharpen our other supply chain processes, and we expect to see that roll into our performance in the balance of the year in both margin improvement as well as.

Brian W. Kocher: Supply for future growth. So that's the second thing finally, I would just like to remind people of our strategy on communicating guidance.

Brian W. Kocher: Finally, I would just like to remind people of our strategy for communicating guidance. We have visibility into the market trend, and Nat in form, our guide. However, visibility into actual order demand by customer, order forecast in the longer term by customer, customer innovation initiatives and activities, and customer promotional activities, that's what inspires and generates our guide. So remember, our communication philosophy is to communicate what we have visibility into in terms of customers, products, and timing versus what we hope happens. With that, operator, we can adjourn. Thank you very much for joining us, and Greg and I look forward to updating you on our progress throughout the year.

Brian W. Kocher: We have visibility in the market trends.

Brian W. Kocher: And that informs our guidance.

Brian W. Kocher: However visibility into actual order demand by customer order forecast in the longer term by customer customer innovation initiatives and activities customer promotional activities, that's what inspires and generates our guidance. So remember our communication philosophy is.

Brian W. Kocher: Communicate what we have visibility to in terms of customers products and timing versus what we hope happens.

Speaker Change: With that operator, we can adjourn. Thank you very much for joining us.

Speaker Change: Greg and I look forward to updating you on our progress throughout the year.

Speaker Change: This concludes today's call. Thank you for joining you may now disconnect your lines.

Operator: This concludes today's call. Thank you for joining us. You may now disconnect your lines.

Operator: [music].

Operator: Okay.

Operator: [music].

Operator: Sure.

Operator: [music].

Operator: Okay.